Debt-averse Oberoi Realty has approved raising Rs 325 crore of equity through the preferential route (a dilution of around 3.25%). Although Oberoi has debt of Rs 900 crore (most of it is secured against receivables of a completed residential project), it has a strong balance sheet (net D/E of 0.13X). Strong sales, aggressive cash collections and high margins establish a strong negative working capital business model for Oberoi. Hence, we believe Oberoi might be closing on a land/project acquisition and is planning to raise monies to fund the same.
Oberoi has around Rs 650 crore of debt secured against collections from sold and unsold area of Oberoi Exquisite. We estimate the remaining area to be sold for nearly Rs 900 crore with minimal construction expenditure as the project stands complete.
Given the liquidity that Oberoi could raise from internal accruals and the equity raise approved, we believe the land acquisition could be a major one, and in the near future too. We estimate Oberoi to have advanced Rs 480 crore to various land parcels. There could be monies required to close such transactions too.
We maintain our buy rating and target price of Rs 325 per share, for Oberoi’s limited track record of consistent business development like its peers. Scale and type of acquisition, whether incremental debt/equity required will trend our estimates and valuation.